Top 7 TO DO’S before Bankruptcy: Item 5 – Stay Current with Car Loan and Mortgage

Don't let this happen

This is the 5th in my series on the top seven things that you should be doing when you are seriously considering the filing of a Chapter 7 or a Chapter 13 bankruptcy. Here I talk about staying up to date with your rent, your mortgage and your car loan. In other words, pay your ordinary living expenses.

Most of my clients want to keep their house or want to continue living in their apartment. And most of my clients want to keep their car. If you are going to surrender your home, break your lease or surrender your car, that’s a different situation and you should probably disregard what I say here.

Bankruptcy Does Not Get Rid of Liens

Once the bankruptcy is finished the underlying debt should be gone but the lender’s lien on your car and your home will remain. This means that if you want to keep the house or car, you still have to make the payments – even though technically you don’t owe the debt any more. All the creditors are going to be under a court order which will tell them to leave you alone. This includes the debts you want to get rid of and the debts you want to keep paying. The creditors will all stop billing you. They might shut down your on line access to your accounts as well.

Keep Up House and Car Payments Even When the Bills Stop Coming

Most of the time, after the bankruptcy is over, the creditors you want to continue paying can be persuaded to start sending monthly statements again. If you reaffirm the debt you will start getting regular bills again once the bankruptcy is final. Whether you should reaffirm is a tricky subject which I have discussed elsewhere and won’t be dealing with here.

If you have not reaffirmed but want to keep paying, you can usually get the creditor to start sending what they call “informational statements.” They will look different than your bills used to. There is language in them which says something like “we know you don’t owe this because of the bankruptcy, but just in case you might want to pay voluntarily here’s the info about your account.

Do Not Pay Ahead

Keep up your payments but never pay extra. Do not pay ahead on your mortgage, rent or car loan or car lease. Paying ahead on things like that is considered to be hiding money. In Chapter 7 the trustee might go after the creditor or go after you to get the extra money back. In Chapter 13 you are proving you have money to spare and the trustee could want to raise your plan payment amount.

Listen to Your Attorney

I make a point of reminding my clients they have to continue paying these normal expenses. For some reason there seems to be a certain percentage who don’t hear me. They seem to think that since the bill stopped they don’t have to pay. Then when there is a threat to foreclose the house or send a tow truck for the car., my phone rings. I hear “oh I didn’t know I had to keep paying that.”

If you are far along in preparing to file a bankruptcy, I hope you have hired a lawyer. If you have not, it’s time you do that. What I say here may apply in most cases, but it might not apply in yours. Talk with your own lawyer about the details of your case.

Top 7 TO DO’s Before Bankruptcy: Item 4 – Retain an Attorney

Real Bankruptcy Lawyer

By David J. Kelly, Minnesota Bankruptcy Attorney

Get Professional Advice

Filing a bankruptcy is a big step. You don’t want to do much or go very far before you consult a lawyer. In preparing to file your case, there may be some financial moves you should make. I cannot emphasize more strongly that you should not make any major changes of any kind without consulting a lawyer first. Be sure that the lawyer knows bankruptcy law – many do not. I often suggest that whoever you talk with should belong to the National Association of Consumer Bankruptcy Attorneys (NACBA) . Any attorney who is serious about learning what they are doing in the field of consumer bankruptcy would be a member. You need someone to consult. You need somebody to plan with. You can’t afford to make a mistake at this phase of things. It’s time for you to hire (“retain”) a bankruptcy lawyer.

Things You Can’t Do Without Retaining an Attorney First

Once you retain a lawyer, that is once the attorney-client relationship is brought into existence by means of a retainer agreement, you have the ability to do several things you could not do before.

For one thing, you can refer calls from bill collectors to you lawyer. I like to keep the bill collectors in the dark about what we are up to. But sometimes they may start calling your mother, or one of your children, or your place of employment. Sometimes they manage to be such a nuisance that you really need them to stop. Once your case is filed they will be under a court order to stop. But what can you do before the case is filed? Here’s what. Answer the phone. Tell whoever it is that you have retained an attorney to do a Chapter 7 or Chapter 13 bankruptcy and you have been advised to not speak with them. But then you give them your lawyer’s name and phone number and say they should call your lawyer. Normally that will be the last you hear from those people.

For another thing, you can set up a payment plan with the lawyer so you can get the attorney fee paid by the time the bankruptcy is ready to file. In Chapter 7 cases your attorney has to be paid before the case is filed. After the case is filed, if you owe money to your lawyer he or she is just another creditor who is forbidden from trying to collect from you. Since it usually takes a few weeks if not longer to prepare a case for filing, this is the perfect time to make payment arrangements for the attorney fee, court filing fee and perhaps also the credit report fee. In Chapter 13 cases the attorney fee can be paid as part of the Chapter 13 plan, but most attorneys still like to have a good part of their fee and costs paid before the case is filed.

And of course hiring a lawyer means you now have somebody to consult with and plan with as you go about the difficult job of planning and putting together your bankruptcy case.

Disclaimer

I am a debt relief agency. I help people file for bankruptcy relief under the federal bankruptcy code. This post is for general information purposes only and does not create an attorney-client relationship. It is not legal advice. Seek the advice of the attorney of your choice concerning the details of your case.

Call Dave at 952-544-6356

Top Seven TO DO’s Before Bankruptcy: Item 2 – Get Your Credit Reports

Credit report obtained by lawyer

By David J. Kelly, Minnesota Bankruptcy Attorney

This is the second in a series of seven blog posts about my top seven things that you should do if you are preparing to file a bankruptcy. This also applies even if you are just considering filing a bankruptcy – either Chapter 7 or Chapter 13. What I want to talk about it getting your credit reports. I wouldn’t dare want to file somebody’s bankruptcy without reviewing at least one credit report. There are three major reporting agencies which each produce their own reports – Experian, Equifax and Trans Union. Usually all three reports are about the same, but not always.

Easiest way: Authorize Your Lawyer Get Your Credit Reports

While you can get your reports on your own, your best choice is to have your lawyer get them for you. For $37 per person I can get a report that pulls information from all three credit reporting bureaus. We will have to provide your email address and social security number. After that we will have to answer three questions to which only you would have the answers. Then I can download your comprehensive credit report info directly into my bankruptcy software. And I will print a copy of the report for you. As a bonus it provides your credit score along with a prediction of what filing bankruptcy will do to your credit score. Somewhat surprisingly, the prediction is usually for an improvement in the score.

The Hard Way: Get the Reports Yourself

If you want to get the reports on your own, the best place to go and the only place I recommend is https://annualcreditreport.com​. There is a federal law that requires the three major reporting agencies to make a report available to each individual once a year. This site was created by the agencies to satisfy this requirement. Unlike the other resources I am aware of, this web site is really free. All the other sites will want you to subscribe or sign up for something. The one exception at annualcreditreport.com is if you ask for your credit score. Don’t do that. It looks like they want to get something in exchange for that, and I don’t need the credit score. I just want to know who the creditors are.

It helps me if you can download each report as a pdf document and then print it on paper as well. If you don’t have a printer, send me the pdf and I’ll print it. There is often a problem in printing these reports where the printer cuts off the top, bottom or side of the pages. If that happens the report is often missing so much that it is not useable. Problems like this can be avoided of course if you just have me get the reports instead.

The Bankruptcy Must List All Your Debts

I can’t emphasize enough how important it is that we list all your debts. Failure to list a debt could result in that debt not being discharged. Unlisted debts aren’t discharged in Chapter 7 cases where there are assets for the creditors. Unlisted debts are also not discharged in Chapter 13 cases. In those situations the creditor could have filed a claim and gotten their share of the payments or assets. But they can’t file a claim if they are never notified. So the discharge doesn’t apply to them.

Creditors can be added for a while after the case is filed, but it is obviously much better to get them all listed to begin with.

Sometimes certain debts don’t show on your credit reports. An example of this is medical bills. The medical people have a confidentiality requirement and don’t want to just tell the world that you owe them money. Typically medical bills don’t show up on credit reports unless they have been sent to a collection agency. In order to report to a credit bureau, the creditor has to have a membership in that bureau. Many small businesses do not have or can’t afford to have that, and debts owing to those businesses won’t be on the reports either. Please keep in mind that even if the debt doesn’t show on the reports, it is still your responsibility to make sure all your debts are listed in the case. You have to give this info to your lawyer. Your lawyer isn’t a psychic.

Disclaimer

This post is for general information purposes and is not legal advice. It does not create an attorney-client relationship. Small details in your case can make a big difference. Consult the attorney of your choice concerning the details of your case. I practice in Minnesota. Laws and practices may be a lot different in your state.

Call Dave – It’s Free

Call Dave for a free telephone consultation. 962-544-6356.

Top Seven TO DO’s Before Bankruptcy: Item 1 – Gather Your Financial Records

Taking Covid safety measures

By David J. Kelly, Minnesota Bankruptcy Attorney

This is the first in a series of seven posts about my top seven things that you should do if you are considering bankruptcy or preparing to file – either Chapter 7 or Chapter 13.

Item 1 on my list is that you should gather the financial records that your attorney will need to process your case. These will include payroll check stubs, bank statements, mortgage records, and tax returns. You should also be gathering together your monthly statements for all your debts. Include any nasty letters you may be receiving from lawyers or collection agencies. Don’t just gather the records you have, but also start keeping records of all your financial transactions. Keep track of your expenses. Keep all your receipts. If there is legal action against you, keep all the paperwork from that. There is a human tendency to want to throw away paperwork that contains bad news. Don’t do it. Keep it and give it to your lawyer.

Income Information

Your attorney will want to see at least six months of income information. Typically this would be pay stubs from any employment you have had during the most recent six months. He or she will also need to know about unemployment benefits, disability benefits, social security benefits, retirement income and any other income source for that six months. If you are self employed or operating a small business, create a cash in – cash out statement. This is a listing of funds received and business expenses paid over that the most recent six months. I prefer to it broken down by month. For a self employed person, “income” usually will be the difference between the cash in and the cash out.

Bank Statements

The trustee in your bankruptcy case will always ask to see at least 30 days of bank statements. Maybe they will ask to see as many as six months of bank statements. This would be a printout or statements for any bank accounts you may have. It always has to include the balance on the day the case is filed. If there are red flags in your bank statements, you want your lawyer to see them before somebody else does. Most of the time I start by asking to see my client’s most recent bank statement. Then I may ask for more depending on what I see.

Keep Your Receipts

If you do a lot of your financial business with cash, it is best to keep very careful records of what you are doing with the cash. Keep your receipts. Keep records for everything you do. You might or might not be asked to produce the receipts, but you should have them ready in case the trustee wants to see them.

Tax Returns

The bankruptcy trustee will require that you produce your most recent state and federal tax returns. I will want to see at least the last two years of your tax returns. There are income questions on the bankruptcy petition that go back two years. The best place for me to get your income information is from the tax returns. If you have unfiled tax returns, I will ask that you get your tax filing up to date before we file the bankruptcy. We have to list all your assets and all your debts. If you owe taxes that’s obviously a debt, and if you have a refund coming that’s an asset. Either way I need to know what that is.

Bills, Nasty Letters and Legal Actions

Even if we eventually get a credit report, there are many things that do not show on those reports. Or the reports might be wrong. So I want to see the statements and letters you have been receiving from your creditors. If there is a lawsuit or a threat of one, I want to see all the paperwork you have about that as well.

Documentation of Assets

If you own your home, find your deed from when you bought the place. Best too if you find a copy of the mortgage you signed at that time. If you have refinanced, find the papers about that too. Usually you get a big folder of stuff when you buy a house or refinance. Just bring that folder to your lawyer and he or she will pick out the needed documents. If you own a car, trailer, camper, or motorcycle, find the title certificates. If you have a boat or an ATV that is registered with the state, find your registration card or papers – your lawyer will need them.

Maintain ongoing records

Finally keep in mind that preparing a bankruptcy is an ongoing process. You are never realy done gathering records. As your attorney works with you to prepare the case, which could take several weeks, continue to keep records. When anything new turns up, be sure you give it to your lawyer.

Disclaimer

I am a debt relief agency. I help people file for relief under the federal bankruptcy code. This pose is for general information purposes only and is not legal advice. It does not create an attorney client relationship.

Call Dave – It’s Free

Call Dave for a free telephone consultation. 962-544-6356.

Things to Avoid Before Bankruptcy: Item 7 – Recent Debt Run-up

Credit Card Debt

By Dave Kelly, Minnesota bankruptcy attorney

This is the last in my series of articles about the top seven things that in my opinion you should avoid doing prior to filing a Chapter 7 or Chapter 13 bankruptcy. My list is not exclusive. There are lots of other things to be avoided. On one web page I saw a list of 33 things to avoid. All I am saying is that this list is my top seven. Others may disagree on my ranking of these.

Why is Debt Run-up Before Bankruptcy a Problem?

The reason you should avoid running up debt right before filing a bankruptcy is that doing so may result in an objection to your discharge from one of the creditors. Typically this would not be an objection to your entire bankruptcy case, but just an objection to the one particular debt owing to that particular creditor. The larger the debt and the closer to the filing date of the bankruptcy it was incurred, the greater the risk.

The creditor will review the account and use the history of the account to try and prove that you had no intent of paying the debt at the time you ran it up. If you had no intent to pay when you incurred the debt, the creditor can object on the grounds of false pretenses and fraud. The evidence that the creditor will use will usually be entirely circumstantial . Basically they put together their case and ask the judge “what’s this look like to you?” Often it can be pretty obvious, other times not.

Worse if for Luxury Good or Services

The creditor’s case is always stronger if the debt is for luxury goods and services, especially if the purchases spike right before the bankruptcy is filed. When somebody who hardly ever goes farther then Duluth suddenly decides they need a trip to Europe, it looks suspicious. Expensive restaurants, large purchases of alcohol, spas and pedicures don’t look so good either. On the opposite end of the spectrum is medical expense. People usually don’t have control of medical costs, and the medical providers almost never object.

What the Law Presumes

Ordinarily the creditor has the burden of proof when they file an objection to discharge. This means that the creditor has to prove their case and the debtor does not have to necessarily prove anything. The bankruptcy statute has two situations, however, where certain presumptions shift the burden of proof to the debtor. Here they are:

1.  Any consumer debt for goods and services owed to a single creditor in excess of $725 incurred within 90 days of filing is presumed to be for luxury items. With the proper evidence in your favor, the presumption can be rebutted; but it’s best just to wait so you don’t have to go through a potential objection from the creditor.

2.  Cash advances in excess of $1,000 made within 70 days of filing are presumed non-dischargeable. Again, if this has happened it may be best to wait until the time period has passed before filing.

What this Really Means

As a practical matter what does all this mean? In my opinion it means that you might not want to file a bankruptcy if you have run up a debt on any one account in an amount of more than 4 or5 thousand dollars in the past six months. If it’s much less than that, the creditor probably can’t afford to do an objection. If it’s much older than that, it’s might be too hard for the creditor to prove. This kind of recent debt runup doesn’t necessarily mean you should not file a bankruptcy. But it could be a good reason to delay the filing for a while.

Disclaimer

This post is for general information purposes only and is not legal advice. It does not create an attorney-client relationship. Consult the attorney or your choice about the details of your case.

 

Things to Avoid Before Bankruptcy: Item 1 – Repaying a Debt to a Close Friend or Relative

Protect your friends and relatives

By David J. Kelly, Minnesota Bankruptcy Lawyer

It has always seemed to me that most of the things you SHOULD NOT do before filing bankruptcy are things that in ordinary circumstances your mother would say that you SHOULD do. If you are thinking of filing a bankruptcy, it’s time to consult your lawyer and not your mother or friends or relatives.  The sooner you consult a lawyer the better.  The bankruptcy code is full of hidden traps and gotchas. 

This is the first in a series of seven blog posts about things to NOT do if you are considering filing a bankruptcy in Minnesota. This post discusses payment of a debt to an insider – usually that means a close friend or relative. It can also include a business partner or associate.

In a Chapter 7 bankruptcy amounts repaid within a year before the bankruptcy is filed on debt owing to an insider can be clawed back by the trustee. In Chapter 13 bankruptcy you have to pay extra money into your plan to cover what the trustee could have clawed back had it been a Chapter 7. Either way, this is something you want to avoid. There is a fix for the problem, but you might not like it: obtaining another loan from the person you repaid in an amount in excess of the amount you paid.

The last thing you want after your bankruptcy case is filed is for your mother or brother to receive a letter from the trustee demanding return of money you paid them.  You get the same result if you pay a debt owing to an insider by giving the insider a benefit indirectly.  Here’s a common example of how this can happen.  Let’s say you need to buy a car but you can’t get a loan to do so.  Your brother does a cash advance on his credit card and loans you the money to buy the car. Every month you make a payment on the credit card that is in your brother’s name.  In a Chapter 7 bankruptcy the trustee can go after your  brother to recover all the payments you made on that credit card within the year before filing.  In a Chapter 13 you may have to pay larger payments to cover for the amount you repaid in your brother’s name.

I always hate it when I learn that my client or potential client has just done something that is really going to make the case difficult.  The rule seems to be that they always do it just a few days before coming in to see me.  If only they had talked with me before doing that!

If this sounds complicated it is. If you are thinking of bankruptcy it is best if you consult a lawyer before you make any financial moves. I would be glad to discuss the details of your case. Call me at 952-544-6356.

Bankruptcy Attorneys Provide an Essential Service

By David J. Kelly, Minnesota Bankruptcy Lawyer


Bankruptcy attorneys are considered to be an essential service. While I have been taking plenty of precautions, such as asking everyone to wear a mask, I am still here and ready to serve. It usually takes several meetings between myself and my clients to properly prepare a case for filing – but many of those meetings can be done by Zoom or telephone or one of the other remote communication platforms. You don’t have to wait. I would be glad to start working with you now. To begin, call me for a free telephone consultation. 952-544-6356.

Covid-19 Update from National Association of Consumer Bankruptcy Attorneys

clorox lawyer

By David J. Kelly, Minnesota Bankruptcy Lawyer since 1976

Just received the following summary from the National Association of Consumer Bankruptcy Attorneys concerning bankruptcy provisions of the Coronavirus Aid, Relief and Economic Security Act” (CARES Act). Here’s what it did:

1. Amended the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. Check out our SBRA Resource Page for more information.

2. Amended the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.

3. Clarified that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.

4. Explicitly permitted individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

I am still here during the Covid-19 Crisis. Lawyers are considered officers of the court. As long as the bankruptcy court is open, and it is, I have to be open too. Still, I am taking every precaution. Don’t be offended if I wipe off the pen you used or anything else you touched, or if I pull my chair back and keep my distance. Also, I am learning how to use Zoom. Already have been using Hangouts and Skype. I prefer Hangouts for virtual face to face; but one can still get a lot done by just meeting remotely by old fashioned telephone. I am limiting actual visits to my office as much as possible.

Just Updated my Blog Theme

Debt Relief, MN Bankruptcy

By David J. Kelly, Minnesota Bankruptcy Lawyer

I have grown weary of getting messages from Google that my site is not mobile friendly. I will admit that up until now I have had to squint a bit to read my blog posts. I was fearful that changing the theme of the blog would be a long and painful process, time consuming and confusing. I have found so far that it is just the opposite. The whole thing took less than an hour.

There are bound to be bugs, however, and if you notice anything that looks strange please let me know.